1982 (12) TMI 95 - AT - Income Tax

Summary

Issues:
Validity of reassessment proceedings under section 147(b) of the Income-tax Act, 1961.
Interpretation of section 64(1)(vi) regarding transfer of assets to beneficiaries through a trust.

Analysis:

Issue 1: Validity of reassessment proceedings under section 147(b)
The appeal and cross-objection were consolidated as they arose from the same order of the AAC. The ITO completed the original assessment based on a return showing nil income related to 'income arising to spouse/minor child'. Subsequently, the ITO received information about trusts created by the assessee for minor grandchildren, leading to reassessment under section 147(b) for escaping income. The AAC upheld the validity of the reassessment proceedings, citing information obtained post the original assessment as grounds for belief that income had escaped assessment. The Tribunal upheld the AAC's decision, emphasizing that the sufficiency of reasons leading to the belief is not subject to judicial review.

Issue 2: Interpretation of section 64(1)(vi) regarding transfer of assets to beneficiaries through a trust
Regarding the application of section 64(1)(vi), the dispute centered on whether there was a transfer of assets to the beneficiaries through the medium of trust. The departmental representative argued for indirect transfer through the trust, relying on a Kerala High Court decision. In contrast, the assessee contended that section 64(1)(vi) did not apply as there was no direct or indirect transfer to the beneficiaries through the trust. The AAC held that for section 64(1)(vi) to apply, there must be a transfer of assets to the assessee's son's wife or son's minor child, which did not occur in this case. The Tribunal agreed with the AAC, referencing decisions from the Bombay and Calcutta High Courts. It highlighted that the trust created by the assessee in favor of the beneficiary did not warrant income clubbing under section 64(1)(vi), as the assets were held by the trustees for the beneficiaries' benefit, not transferred directly or indirectly to them.

In conclusion, the Tribunal dismissed both the appeal and the cross-objection, affirming the AAC's decisions on the validity of reassessment proceedings and the interpretation of section 64(1)(vi) regarding transfers through trusts.